TeamLease Services' share price rose over 5 per cent in morning trade on BSE on Wednesday (May 7) after brokerage firm Motilal Oswal Financial Services upgraded the stock to a 'buy' with a target price of ₹2,890, implying a 34 per cent upside potential.
Besides, the brokerage firm said the target price implies 25 times FY25E earnings per share (EPS), a 10 per cent discount to its five-year median price-to-earnings ratio (two-year forward) on account of the slow normalisation of profitability.
TeamLease shares have been under strong pressure in the last one year. They are down by nearly 35 per cent against a 13 per cent rise in the equity benchmark Sensex. The stock hit its 52-week high of ₹3,816.35 on July 27, 2022, and a 52-week low of ₹2,012 on May 9, 2023, on BSE.
Motilal Oswal expects the company's revenue growth to accelerate to 21 per cent year-on-year (YoY) in FY25, aided by a recovery in IT services and a gradual margin recovery (up 50 bps versus FY23).
"We estimate a 33 per cent PAT CAGR over FY23-25. With current valuations focused on near-term challenges, we see scope for a re-rating in the stock as these challenges ease out. With healthy long-term growth prospects, margin recovery, closure of EPF issues and attractive share price, we see a good upside to current valuations and upgrade the stock to a 'buy," Motilal Oswal said.
The brokerage firm highlighted that the staffing industry remains under-penetrated and is set to deliver consistent growth on account of formalisation and the implementation of labour law reforms over the medium term.
"As both the central and state governments look to liberalise and formalise the labour market, TeamLease should be among the biggest direct beneficiaries in the medium term," said the brokerage firm.
"Due to concerns about growth moderation, especially in the specialised staffing vertical, and margin pressure, the stock has seen significant de-rating (down nearly 59 per cent from the peak)," Motilal Oswal observed.
Disclaimer: The views and recommendations given in this article are those of the brokerage firm. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
